Spatial Access Solutions managing partner Meenakshi Madhvani gives a low down on what the critical drivers will be in the television and media space over the next 12 months. In a tete-a-tete with Indiantelevision.com, Madhvani zeros in on the problems that the industry faces and the possible solutions around them...

Technology is not going to be the driver in the Indian market over the next 12 months. Even if 3G technology for mobile comes into India, the question is how many mobile handsets will have the capability to support it? If you look at the 3G penetration in the developed markets, it has not really changed the face of communication.

In India, there will be a 0.001 per cent of the population that will adopt to 3G but again, it's not going to make a change to the masses at large or even to the consuming class.

So the impact of technology in the way communication is controlled and managed today will happen 12 months down the line. What is primarily going to create a disruption in communications is not so much the service providers as much as the recipients of the services because consumers are changing the way we are interacting with communications and media. Consumers are actually going to drive those changes.

Consumers today are getting increasingly upset and annoyed with intrusion in their space. There is a large amount of negative press that consumers have given. In-programme placements or immersive technologies and communication in that sense is going to trigger off a whole series of reactions and responses where consumers start feeling that they don't want a particular thing.

Even if you look at SMS marketing, there is a huge move today to try and prevent companies from intruding into their space with their SMS messages.

The three critical factors in the coming 12 months:

• Consumers
• Media owners are going to look at sampling the product first and then worry about revenue. In the next 12 months media owners will drive sampling and get people to experience their products and what it has to offer without really being able to focus on revenues. So the gestation period for breaking even in terms of media offerings is going to get longer and because of this fewer and fewer players will enter the space on a whim. The players who are going to come in are going to be serious and with deep pockets with a lot of money.

Disney is a fabulous example; they have deep pockets and have a commitment to the market. They are going to wrest control in this market. It's going to take them a while and millions of dollars before they do it but they will do it. Someone like a Hungama is going to feel an incredible amount of pressure. So a lot of players are going to build up some amount of critical mass and then try and leverage on it.

• The internet, which for long has been talked about as the new medium of communication, is actually going to come into its own. What's happening is net penetration, usage and time spent are increasing dramatically. There is a whole class of consumers particularly the young (sub 25 group) who see the internet as the primary medium and not the secondary one. Anyone who is looking at targeting this group is going to have to necessarily start talking to them in a space that they are familiar with.

These changes are going to impact the players in the industry and media owners are going to find that they need to get far more aggressive when it comes to driving trial and sampling. This will also force media owners to start looking at differentiating products. Today, when you have a cluster of products which do not have a unique identity, it's fine when there is a limited cluster. But when the size of that cluster increases and multiplies, then product differentiation starts becoming crucial and fundamental.

Marketing will become more and more focused as now you have to invite the consumer to sample your product.

Pricing will become very elastic because when channels try to build up the numbers and get in advertisers, they will not be in a position to hold on to their prices. The price elasticity of the newer players will drive down the realisation of the more established players. Overall, cost reduction will be seen.

While the coming in of new players like Disney in the market has not led to a bunging down of prices, it has definitely led to a softening of prices. Every new entrant has had an impact on the existing players. If the new entrant is a clone of the established player, then obviously there is a limit to how much softening the established player will experience. But if there is the new entrant who is fundamentally and textually different, then there will be an impact.

Currently I don't think any new player is dramatically different. You look at Aaj Tak and then you look at all the other news channels that have launched after it and they are like clones. Not one of them has anything that sets it apart. Because of this, they are all just expanding the market and the market expansion has taken place at a slower rate than warranted by the number of new entrants that have come in.

If you look at the news genre, from a Rs 250 crore genre it has become a Rs 350 crore genre (at discounted prices). So Rs 100 crore has been added on to it through the introduction of six - seven new entrants. Even if these new channels would not have been added on, the Rs 250 crore would have become Rs 300 crore in any case. There may be a debate on the numbers, but one can't deny the principle that every additional channel that is coming in is expanding the market but the rate of expansion is getting slower and slower.

At some point in time in the near future there will be a certain amount of stability when it comes to these genres. So any new channel that comes in is not going to expand the pie but is going to survive if it has a differentiating product. I am particularly keen on seeing what happens with the launch of Times Now because I feel the channel has potential.

The other aspect of this is that the industry does follow ratings to a very large extent but when it comes to the focused channels for instance a lot of buyers don't really look at the numbers and the news genre has become part of the focused channels genre. A channel like Aaj Tak is seen as delivering reach in the North, but when it comes to channel decisions it is driven by personal choices. Because of which there is a lot of dichotomy. I have seen so many instances of people putting fairly large sums of ad money on CNBC, which doesn't deliver anything in terms of numbers but is seen as a channel which decision makers watch and the channel that delivers corporate India to you. There are these popular perceptions that some channels have very smartly exploited.

An NDTV for instance, which has a fantastic marketing and sales team, is able to leverage these perceptions to get more than their fair share of advertising. That's marketing!

As far as radio is concerned, it's not 2006 but 2007 that we have to watch out for because by the time the licensing gets cleared it will be end of 2006 and beginning 2007. In 2006, none of the new stations and new licensees are going to be out. So the impact will be felt only in 2007.

FM Radio is currently following that creeping strategy. Decent money is spent in radio. The problem with radio is that there is no research available except for the MRUC listenership study, which is done in Mumbai and Delhi. Unfortunately, the myopic industry that we are in tends to use the excuse of not having data when they don't want to explore new options or new vehicles. The Internet is one of them and radio is another.

Every single advertiser who uses radio has found that it delivers tremendously. I see a 15 - 20 per cent growth in radio in the next year till the new players come in. Then it will explode and the medium will also become far more relevant.

MEDIA

Agencies are also getting into some very thin ice over the next 12 months. On the one hand, you have media agencies who have discounted on their fees over successive years until they have reached a stage now where they are working at such incredibly low fees that there is no way that they can actually sustain their business model.

In order to do that they have to find alternate avenues of compensation, which are in the form of agency volume rebates and discounts that are given to agencies by media owners. If the media owners are willing to incentivise the agencies to recommend its vehicle or publication, then the agency actually supports that vehicle or publication.

As a result of this, a lot of media decisions that are recommended by agencies are not taken because of the inherent strengths or weaknesses of the media but are more quid pro quo. There are divergent requirements at the agency's end. On the one hand, there is a need to do a good job for the client and recommend a right kind of media mix for them. On the other hand, there is a need to ensure a decent bottomline. So there are these opposing forces that are pulling agencies in different directions. As a result of this, advertisers don't get the kind of media mix that they actually need. It's an industry issue that needs to be addressed.

Added to that, the agencies also have the problem of man power as the attrition rate is very high. Too much of outflow of talent and not enough willingness to invest in their people. The business model has stopped making sense.

A total of 377 accounts have shifted hands in the last 11 months. The money that changed hands in the last 12 months was Rs 3600 crores (Rs 36 billion) - more than 25 per cent of the Indian ad industry.

With that kind of impermanence and churn, agencies are not willing to invest in their clients' business. This problem is just escalating. I think what an advertiser needs to do is hire an agency on a three year contract and evaluate its performance on certain parameters. At the end of the three year period, if the agency has performed then they should be rewarded with a fantastic bonus.

In exchange for which, the advertiser can demand transparency and accountability because unless we can set the advertiser-agency relationship right, the media is just going to be a football being kicked from one end of the stadium to the other. That is really going to be the most significant problem that the industry will have to cope with over the next 12 months.

The media is looking at advertising today as 80 per cent of revenues that media owners are surviving on are coming out of advertising. If 80 per cent of the revenues are under pressure because of the issues between the two key players in that space… how are they going to survive and develop their businesses?

The market needs to realise that the days of cost evaluation are over. Stop looking at cost and start focusing on value as the consumer is no longer cost centric whether it is FMCG, white goods, two wheelers etc. They are value focused. If advertisers and agencies just took a leaf out of the consumers' book and followed in their footsteps, then there is resolution inside.

In conclusion, I will say it is a fabulous time of opportunity and I'm extremely optimistic about the next 12 months. I also think that it is a time of introspection because if that doesn't happen and if the industry either as pockets of excellence or collectively are not willing to address these issues, then going into 2007 is going to be a nightmare.